Banks can flag fraud despite IBC shield: NCLT

Time of India

14-07-2025

Mumbai: The National Company Law Tribunal has held that a moratorium under the Insolvency & Bankruptcy Code (IBC) doesn't prevent a bank from identifying and classifying a
fraudulent account
, calling such an action purely the bank's administrative decision.
The tribunal's observation is likely to have wider implications in many similar cases where the lenders are seeking to declare the corporate debtor's account 'fraudulent' while the company is still undergoing the Corporate Insolvency Resolution Process (CIRP).
Dismissing an application filed by the resolution professional (RP) of
Rolta India
, the NCLT's Mumbai bench observed that CIRP and fraud identification are separate processes with different objectives.
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"The role of this tribunal is to ensure the integrity of the CIRP and address any fraudulent activities within that context, not to directly overturn a bank's independent classification of an account, as
banks
have the discretion to classify accounts as fraud based on their internal policies and regulatory guidelines," the tribunal said in its order of July 8.
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The ruling came on an application filed by Rolta India's RP, which had sought to set aside
Bank of India
's move to classify the company's account as fraud.
In March, Bank of India had classified a ₹616 crore non-performing asset (NPA) related to Rolta India as fraud.
Jyoti A Singh, founder of law firm AJA Legal, said the purpose of the moratorium under IBC is to prohibit all actions, including the proceedings, which would in any manner affect the insolvency resolution of the company.
"Classification of a corporate debtor as a fraud account would in no way affect the CIRP," said Singh. "In fact, having provisions like Section 66(2), which mandates the RP to make an application during CIRP for instances of fraudulent trading or wrongful trading, supports the view of the tribunal."
The company has admitted liabilities of over ₹14,074 crore. Kamal Singh-promoted Rolta is a defence-focused software company that was admitted to the bankruptcy process in January 2023.
Himanshu Vidhani, partner at law firm Chandhiok and Mahajan, said the order distinguishes administrative decisions of banking institutions from measures that would affect the assets of the corporate debtor.
"The tribunal has also acknowledged the dual regulatory space-corporate insolvency under the IBC and
fraud classification
under the Reserve Bank of India's 2016 Master Directions on Frauds," said Vidhani.
On a different note, Pallavi Pratap, managing partner at New Delhi-based law firm Pratap & Co, said (with this order), clearly, the litigation strategy for many stakeholders has to be changed now.
"Tribunals will refuse to interfere in the bank's administrative decisions anymore," said Pratap. "This will expose the corporate debtor and promoters to the risk of criminal investigation during CIRP. This will also create a higher risk for the resolution applicant as they will have to inherit criminal investigation and subsequent litigation and costs."